Zscaler (ZS) down as decelerating NRR overshadows Q2 beat and raised outlook
Zscaler (NASDAQ: ZS) reported Q2 earnings and revenue that topped analysts' expectations and hiked its guidance for the full fiscal 2024.
Shares fell nearly 7% in premarket trading Friday.
For the FQ2 2024, the company posted EPS of $0.76, beating the consensus estimate of $0.58. Revenue for the quarter also surpassed projections, coming in at $525 million compared to the consensus estimate of $507.58 million.
ZS reported a 27% year-over-year increase in calculated billings, reaching $627.6 million.
Total operating expenses increased to $453.3 million during the period, up from $365.2 million in the same quarter last year.
For the upcoming third quarter of 2024, Zscaler anticipates an EPS between $0.64 and $0.65, outpacing the analyst consensus of $0.58.
Revenue is anticipated to be in the range of $534 million to $536 million, slightly above the $531 million projected by analysts.
For the full fiscal year 2024, the cloud security firm raised its projections, and now expects EPS between $2.73 and $2.77, up from the $2.45 to $2.48 it previously expected, and above the consensus estimate of $2.49.
FY2024 revenue is anticipated to land between $2.118 billion and $2.112 billion, up from the earlier forecast range of $2.09 billion to $2.10 billion, while analysts estimated $2.1 billion.
"We delivered strong Q2 results, with billings, revenue and operating profit all coming in above our guidance as customer interest in the Zscaler Zero Trust Exchange platform remains high," said Jay Chaudhry, Chairman and CEO of Zscaler.
“An increasing number of customers are realizing the shortcomings of traditional firewall-based security and are engaging with us to transform their legacy security to Zero Trust architecture".
According to Bernstein analyst Peter Weed, Zscaler's post-earnings stock price dip may be due to "a combination of a smaller beat and continued deceleration in NRR."
"The company revenue guidance beat of 3.8% was less than recent quarters (the prior four quarters they had delivered 5-6% above their guide), and it appeared particularly driven by continued weakening in the expansion of existing customers," Weed said.
Meanwhile, Net Revenue Retention (NRR) was reported at 117%, down from 120% in the quarter prior and 130% in the year-ago period.
"We agree the short term impact will likely be persistently lower NRR, driven particularly by slower upsell," the analyst wrote in the note.
"But looking longer term, we expect the larger mix of new customers, improving macro, and maturing sales process will be able to offset slowing new customer proportion of growth (due to business scale) and maintain near 30% (or better) growth levels through FY26," he added.
By Vahid Karaahmetovic